Let's take a look at a few of the pros andcons of consolidating your student loans.
If you have multiple student loans, consolidationcan offer some simplicity to your repayment.
Essentially what happens when you consolidateis that all of your original loans are paid off by your lender and replaced with a singlenew loan with new terms.
And you can often get a lower monthly payment because you willhave a longer repayment period,so there are some trade-offs to keep in mind.
Let�s look at an example of getting a federalconsolidation loan�you can also get a private consolidation loan if you have private loans,but we�ll get to that in a minute.
Let�s say you have fifty thousand dollarsin federal loans.
Fifteen thousand dollars in subsidized loans with a three point fivepercent interest rate, and then two different unsubsidized loans: a loan of twenty thousanddollars with a four percent interest rate, and a loan of fifteen thousand dollars witha five percent interest rate.
[Show example, with interest rates.
] If you�re not sure about the differencesbetween unsubsidized and subsidized loans, we cover this in another video.
[Flash intro video] Now as you can see, keeping track of theseloans might get complicated�especially if you�re making payments to different loanservicers.
Entering these numbers into the loan calculatorat studentaid.
Gov�on a standard ten-year repayment plan, you�re going to be payinga little over five hundred dollars a month.
Over ten years, you�ll pay about eleventhousand dollars in interest on your original principal of fifty thousand dollars.
Now let�s say you want to consolidate theseloans.
Under your new loan terms, your loans will be consolidated into one fifty thousanddollar loan�and you�ll have one new fixed interest rate, which is determined by takingthe weighted average of the interest rates on your previous loans, and rounding up tothe nearest one eighth of one percent.
In this case, that�s four point two five percent.
Now, entering your loan information into aloan consolidation calculator, you�ll find that consolidating your loans gives you anew repayment period, which is figured based on the amount you owe� the more you owe,the longer this repayment period will be.
It can vary from ten to thirty years, butin this case it�s going to be twenty five years.
And your new monthly payment will be abouttwo hundred seventy dollars.
That�s a lot less than the five hundred dollars a monthyou would have spent on a standard ten-year repayment plan.
But, paying two hundred seventydollar per month for twenty-five years means you�ll be paying a total of about eightyone thousand two hundred fifty dollars over the life of your loan.
Subtract your original fifty thousand dollars,and you�ll see you�re paying over thirty one thousand dollars in interest, comparedto the eleven thousand dollars you�d pay on the standard ten-year plan.
So while simpler and lower monthly paymentsmight give you some relief in the present, the trade-off is that it can cost you a lotmore over time.
You will also have new loan terms.
This meansthat you may miss out on some of the repayment benefits you might have been eligible foron your previous loans, like interest free deferment on subsidized loans or loan cancellationfor special circumstances.
But if you do decide to consolidate your loans, it's good to keepin mind that you always have the option of paying more than your monthly payment whichcan save you money over time, while still having the flexibility of not having to makethe higher monthly payments that you would have on a standard ten-year plan.
But everyone's situation is different.
Ifyou're struggling to make payments on your original loans, you might consider repaymentoptions other than loan consolidation, like an income-based repayment plan.
Or if yourun into a financial hardship and need short-term relief, you might consider deferment or forbearance.
These options are covered in detail in other videos.
Now, if you have private student loans, youalso have private loan consolidation options.
They work much like a federal consolidationloan, except they also take into account your credit score when determining your interestrate.
So if you have a lower credit score, you might be looking at a higher interestrate.
If you�ve just left school, you probably haven�t had the chance to build up a goodcredit history yet, so with private consolidation you might get a simpler, lower monthly payment,but you could end up paying more in combined interest.
But if you happen to have a steady job andhave built up a good credit score, you might be able to get a lower interest rate fromanother lender than your current private loans, so it might be worth looking into.
So while loan consolidation can make yourmonthly payments simpler if you have multiple loans with different interest rates, you couldend up paying a lot more if you extend your repayment period.
But by comparing the prosand cons of each repayment plan available, you�ll be able to find out which optionis right for you.